Climbing Through the Debt Ceiling
So we turn to the economic impact of a debt ceiling delay; specifically, the impact on publicly traded firms' earnings, which ultimately determines whether this hits stocks. This should be minimal. U.S. firms have already weathered three-plus years of federal spending cuts -- public contracts aren't what they used to be -- so fewer firms will take a revenue hit from government IOUs. Then, too, any hit is short-term.
Once Congress compromises, the Treasury can issue as much debt as needed to repay those IOUs. So over time the impact on profits is slim to none.
Absent a legitimate default threat or potential hit to corporate profits, the debt ceiling isn't a risk for stocks. There aren't anywhere near enough associated negatives to outweigh all the fundamentals driving this bull market. In the near term, we could see sentiment-driven volatility -- folks are fearful.
But over time, as fear fades and reality surpasses investors' dour expectations, markets get a lift. When reality proves fear false, investors buy stocks. It's rather like investors having to cover short positions when markets don't tank. False fears create equity demand -- a powerful market tailwind and a big reason to be bullish on the debt ceiling.This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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